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AUTO INSURANCE

Class-action settlement was a travesty

There was only one real winner in the recent $35.7 million settlement of a
class action suit against two of Texas' largest auto insurers. That was John Cracken of
Dallas, the class action lawyer who filed the suit. He will reap about $10 million in
fees, some of which will also go to the small army of media flacks and others who helped
him. Policyholders will reap $5.75 each - less than the price of a single movie ticket. If
ever there was a suit that exposed the deficiencies of class actions, this is it.

Mr. Cracken sued the Farmers and
Allstate insurance companies, alleging that their practice of
double-rounding insurance premiums was a rip-off of consumers.
(The practice involved the rounding of both the annual and semi-annual premiums paid by
most motorists.) He was right. The practice was a rip-off. The extra few cents exacted per
consumer amounted to a windfall for the companies.

But the insurers produced evidence indicating that Texas regulators had forced them to
do it, and Texas Insurance Commissioner Elton Bomer admitted that
his department (years before he assumed his post) had consistently advised the insurers to
double-round.

The apparent complicity of Texas regulators is why there never should have been a
class-action suit in the first place. The offending practice should have been corrected
administratively by the insurance department, not by a hand-picked
South Texas court known for its sympathies to plaintiffs.

The settlement seems even more sour when one takes into account the following: Mr.
Bomer's actuaries have calculated that only about $10 million of the $25 million set aside
for policyholders will be paid out. That's because people who held policies before 1995
and are no longer with either insurer must request their refunds in writing. So much for
defending consumers' interests.

While there is only one winner, there are many losers. They are the policyholders, who
in time will pay with higher premiums the cost of this wretchedly excessive and
unnecessary affair.

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